APPROPRIATE ACTIONS WERE TAKEN TO PREPARE FOR THE RECEIPT OF NEW FILING
INFORMATION FROM SMALLER TAX-EXEMPT ORGANIZATIONS

Issued on December
21, 2007

Highlights

Highlights of Report Number: 2008-10-051 to the Internal Revenue Service Commissioner
for Tax Exempt and Government Entities Division.

IMPACT ON TAXPAYERS

The Internal Revenue Service (IRS) is taking appropriate actions
to prepare for the receipt and processing of annual electronic notices, also
known as e-Postcards, submitted by smaller tax-exempt organizations.However, a draft letter and some outreach
materials used to inform organizations of the new filing requirement did not
include all information required by the new law.IRS management took immediate action to
revise the letter and outreach materials, which will ensure the IRS provides
clear and accurate information about smaller tax-exempt organizations’ new
filing requirements and prevent confusion by these organizations about what
information to provide.Inaccurate
guidance to organizations could have resulted in increased burden as these
organizations try to determine what information should be provided and possibly
increased calls to the IRS to confirm what information is required.

WHY TIGTA DID THE
AUDIT

Both TIGTA and outside stakeholders, such as the Panel on the
Nonprofit Sector, have raised concerns regarding the accuracy and reliability
of information the IRS maintains on exempt organizations.

On August 17, 2006, President Bush signed the Pension Protection
Act of 2006 requiring tax-exempt organizations previously not required to file
an annual information return because their gross receipts were $25,000 or less,
to electronically file specific identifying information to the IRS on an annual
basis, beginning January 2008.The
Pension Protection Act also established a new requirement that organizations
failing to provide this information or failing to file an annual information
return for 3 consecutive years will have their tax-exempt status revoked.This change in the tax law will assist the
Exempt Organizations function in identifying many tax-exempt organizations that
have ceased operations.

This review was initiated due to the short time period between
when the law was enacted and its effective date.TIGTA’s objective was to assess the adequacy
of IRS efforts to prepare for the receipt of new filing information by
tax-exempt organizations with gross receipts of $25,000 or less as required by
the Pension Protection Act.

WHAT TIGTA FOUND

The IRS identified approximately 650,000 tax-exempt organizations affected
by Section 1223 of the Pension Protection Act and began informing them of
the new filing requirement and the consequences for nonfiling.In addition, the IRS has initiated or planned
a number of education and outreach events to inform the tax-exempt community
about the Pension Protection Act’s requirements and began efforts to update
notices, forms, and publications.Finally, the IRS began development of an electronic system that will
allow smaller tax-exempt organizations to electronically submit an e-Postcard
to comply with the filing requirements in the new law.

TIGTA identified some areas of improvement related to the letter
used to inform organizations of the new filing requirement.In addition, TIGTA also reviewed documents
that had already been completed or updated as part of the IRS’ outreach efforts
and determined that information could be clarified in two of the documents to ensure
that affected tax-exempt organizations understood what information would be
required from them beginning in January 2008.

WHAT TIGTA RECOMMENDED

During the audit, TIGTA recommended the letter used to
inform organizations of the new filing requirement and other documents be
updated to include all information required to be submitted as part of the new
e-Postcard filing requirement.Since the
IRS took immediate actions in response to recommendations made during the
audit, TIGTA made no additional recommendations in the report.However, key IRS management officials
reviewed it prior to issuance and agreed with the facts and conclusions
presented.

READ THE
FULL REPORT

To view the report,
including the scope, methodology, and full IRS response, go to: